Although you can purchase a new home without knowing all the tricks and techniques for securing a low rate, future homebuyers should educate themselves on the home buying process.
In some states, it is mandatory for first time homebuyers to attend a home buying workshop. If you have bad credit, these workshops are beneficial. They teach you various techniques such as how to improve credit rating, and how to find a lender that caters to bad credit home loans.
Bad Credit Rating Effect Loan Approval
For the most part, you can obtain a home loan with fair credit. In some cases, you may even be able to get a low rate. Unfortunately, if your credit score falls below 500, homeownership may be impossible. Even with a credit score below 600, your loan options are limited. Thus, it is important for those contemplating buying a home to improve their credit rating.
Before approving a loan and offering a mortgage rate, lenders will carefully review your credit report and score. Late payments, collection accounts, excessive debts, and inquiries contribute to having a high or low credit score. Mortgage rates are based on credit rating. Hence, if you are hoping to get a great mortgage rate, which equals lower monthly payments, now's the time to improve credit.
Save Enough Money for a Down Payment
Because it is difficult for hard-working people to save money for a down payment and closing costs, various loan programs will incorporate fees into the total loan amount. However, if you have bad credit, a down payment can improve your chances of getting approved for a home loan.
The ideal down payment is about 20% of the home price. Nonetheless, lenders are willing to accept smaller amounts. If possible, attempt to have a down payment of at least 3% to 5%. Aside from boosting approval chances, a down payment may help you secure a lower rate.
Use the Right Lender for a Bad Credit Loan
To obtain the best mortgage loan with a low credit score, you need to use a sub prime or high risk lender. Some traditional lenders offer sub prime loans. However, choose a lender that specializes in bad credit loans. You may obtain better rates with a bad credit mortgage lender.
View our recommended bad credit mortgage lenders online.
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